Share this

The country has 10 percent unemployment and 2 million homeowners a year are facing the loss of their homes. This is a disaster demanding big solutions. It's also important to note that the people suffering are not the people who caused the problem. Those people have names like Bernanke, Greenspan, Bush, Clinton, and Rubin. Unfortunately, all the perps are still walking tall with huge piles of money in the bank, it is their victims who are suffering.

While it seems unlikely at this point, President Obama should step up to the plate and level with the public. He should explain that we are in this downturn due to failed economic policies that date back to the Clinton years (great show of bipartisanship). He should explain how Clinton pursued deficit reduction, not because it was good economic policy, but because his vision was distorted by his Wall Street oriented economic team. In theory, deficit reduction was supposed to promote growth by lowering interest rates. Lower interest rates in turn were supposed to lead to higher investment and a lowered valued dollar. The lower valued dollar in turn would make U.S. manufactured good more competitive domestically and internationally.

However, this is not what happened. There was very little uptick in investment beyond what would be expected in any business cycle upturn. And, instead of falling, the dollar rose, leading the trade deficit to soar. Instead, what drove the economy was a consumption boom that was driven by the wealth created by the stock market bubble. When this bubble burst in 2000-2002 it threw the economy into a severe downturn. There was no easy way to recover from this downturn because it was the result of a collapsed bubble, not the Fed's decision to raise interest rates to slow the economy. The latter can be easily corrected by having the Fed lower interest rates to boost growth.

As a result of the stock market crash the economy lost jobs not just in the recession itself, but all through 2002 and most of the way through 2003. It wasn't until the housing bubble picked up enough steam in late 2003 that the economy began to again create jobs.

Of course housing bubble driven growth was as unsustainable as stock bubble driven growth. When this bubble burst it gave us the crash that led to 10 percent unemployment and 20 million homeowners being underwater.

Obama should explain this simple history to the public and announce that he is going to make a clear break with the past. This means first, that he is withdrawing his support for Bernanke's reappointment as Federal Reserve Board chairman. Second, he will take whatever steps are necessary to lower the value of the dollar in order to make U.S. goods competitive in world markets. Third, he will adopt the work-sharing models that have kept unemployment from rising in Germany and Netherlands in this downturn. It is much better for workers to have shorter workweeks and longer vacations than suffer through double-digit unemployment.

Finally, he should denounce the demagogues who continually raise fears about the deficits. In the short-term we need large deficits to sustain demand. Smaller deficits mean higher unemployment, it is that simple. The people who are yelling about deficits right now want to raise the unemployment rate. He should then acknowledge that the country has a longer-term problem, but this is almost entirely due to the high cost of our broken health care system. We currently pay more than twice as much per person for our health care as do people in countries like Germany and Canada and we have nothing to show for it in terms of outcome. In coming decades we are projected to spend three and four times as much as people in other countries.

Obama should announce a bi-partisan commission that has the job of finding ways to bring our health care costs in line with those in other countries. They are to issue their report in time for the State of the Union address in 2011.

More POLITICO Arena

About the Arena

The Arena is a cross-party, cross-discipline forum for intelligent and lively conversation about political and policy issues. Contributors have been selected by POLITICO staff and editors. David Mark, Arena's moderator, is a Senior Editor at POLITICO. Each morning, POLITICO sends a question based on that day's news to all contributors.